Date introduced:1 May 1996House: House of RepresentativesPortfolio: Transport and Regional
DevelopmentCommencement: Other than the repeal of the
International Shipping (Australian-resident Seafarers) Act
1995, which will have effect from 1 July 1996, the Bill will
commence on Royal Assent.

Shipping serving Australia is both a major industry and a large
contributor to Australia's current account deficit. In 1993-94, the
cost of freight on Australia's external trade carried by sea was
approximately $9.9 billion, with Australian shipping earning
approximately $1.6 billion. The net cost of using foreign shipping
in 1993-94 was approximately $2.5 billion, or 15% of Australia's
current account deficit in that year. (1) In June 1995 there were
approximately 30 Australian ships engaged in international
trade.

Australian shipping faces greater costs than many other
international operators. This results from the higher standard in
Australian ships than those registered under flags of convenience,
relatively high wage costs and relatively high crewing levels. The
latter problem has been addressed through industry reforms, which
saw the number of seafarers at the end of 1993-94 being 233, or 8%,
lower than at the end of 1992-93. Australian crewing levels now are
close to international standards.

The shipping industry receives a number of concessions,
including:

International shipping is exempt from many of the restrictive
trade practices prohibited by the Trade Practices Act
1974; To enable international conference agreements to
act;

The existence of cabotage which restricts most coastal trade to
Australian ships;

The Tasmanian Freight Equalisation Scheme which provides
subsidies for the carriage of freight to and from Tasmania.
Payments under the scheme totalled $39.5 million in 1994-95;
(2)

As the Bill deals with the latter two Acts, they will be dealt
with in more depth.

The IS Act was introduced following negotiations on the proposed
sale of the Australian National Line (ANL). The proposed sale of a
substantial part of ANL was raised during debate on the
Appropriation Bills in 1992. In August 1994 the Government
appointed a new board with the task of restructuring ANL after
doubts were raised about the financial viability of ANL. The sale
of ANL was subsequently endorsed by the ALP National Conference. In
September 1994 members of the government, ACTU and maritime unions
met to discuss an industry reform package, which was designed to
make ANL more attractive for sale. As part of the reform package it
was announced that grants would be paid to ships owners and
operators to offset the impact of income tax on seafarers engaged
in international trade.

The explanatory memorandum for the Bill introducing the
IS Act estimated that the scheme would cost $19 million for 1995-96
based on 30 ships being engaged in international trade, with
approximately one third of this amount being recouped through tax
paid by those receiving the grants (this is based on the assumption
that all the recipients would be paying the full company tax rate).
Each additional ship was estimated to cost, after tax, $400 000 per
year and the cost of the scheme to 30 June 2000 was estimated to be
$59 million. The explanatory memorandum to this Bill
estimates that the repeal of the IS Act will save $40 million of
the estimated $59 million expenditure, with $19 being paid for
entitlements to 30 June 1996.

The IS Act was opposed by the then Opposition which voted
against the legislation. The repeal of the IS Act was not detailed
in the Liberal and National Parties' transport policy released
prior to the 1996 General Election.

The sale of ANL did not proceed. After various other potential
buyers had dropped out, negotiations continued with the sole
remaining potential buyer, P&O. However, the sale of ANL to
P&O was strongly opposed by the Maritime Union of Australia
(MUA) which threatened industrial action unless P&O gave
certain assurances about crewing matters. Such assurances were not
given and the government announced in December that the sale had
been abandoned and that ANL would be restructured instead.

The Capital Grants Act was, again, introduced as part
of a shipping reform program. The Act provides for grants at the
rate of 7% of the cost incurred in relation to registered
Australian ships that are:

purchased as new ships

purchased as ships less than 5 years old that have not
previously been registered in Australia

extensively modified ships

The Capital Grants Act was introduced to facilitate the
updating of the Australian shipping fleet to allow crewing to
reflect international standards. It is a condition of all grants
that the crewing of the ship in respect of which a grant is made
does not exceed the maximum number fixed under the Capital Grants
Act. The Capital Grants Act as originally enacted contained a
sunset clause (section 9) which provided that grants would not be
payable in respect of activity (ie the purchase or modification of
vessels) that occurred after 30 June 1992. The sunset clause was
extended to 30 June 1997 in 1990.

In relation to the Capital Grants Act, the Department of
Transport's 1994-95 Annual Report states:

....grants made under the Ships
(Capital Grants) Act 1987 totalling $5 604 544.97 [were made
in 1994-95]. The grants were for the purchase of one new ship
(introduced in 1994) and two supplementary payments in respect of
previous grants. This expenditure was down on the 1993-94 grant
payments of $22.6 million for two new ships, four supplementary
payments and seven ship modification payments. The lower figure
reflects the relatively low capital value of the one new ship
introduced in 1994 and the timing of new ship purchases by
shipowners.

As with the repeal of the IS Act, the decision to terminate the
Capital Grants scheme from 1 July 1996 was not detailed in the
Liberal and National Partys' Transport Policy document released
prior to the 1996 General Election.

The explanatory memorandum to the Bill estimates that the early
termination of the Capital Grants scheme will save approximately
$12 million.

The measures contained in the Bill have been opposed by both
industry and unions. It is reported that BHP and two other
Australian shipping operators (reported to be Shell and CSR) are
opposed to the termination of the Capital Grants scheme due to the
additional cost of new ships. The MUA is reported to be considering
industrial action over the measures contained in the Bill and other
proposed changes to shipping and the waterfront. The ACTU has
argued that the repeal of the IS Act will increase costs for
Australian international shipping by 20% and would force Australian
operators to cease international shipping. It has also been
reported that the executive director of the Australian Ship Owners'
Association has condemned the legislation. (4)

Chris Field Ph. 06 277 2439
Bills Digest Service
Parliamentary Research Service

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Published by the Department of the Parliamentary Library,
1996.

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Last updated: 10 May 1996